Taxes Consolidation Act 1997 section 835AJ

Financial instrument deduction without inclusion mismatch outcome

Section 835AJ defines what constitutes a financial instrument deduction without inclusion mismatch outcome and sets out the rules to neutralise such an outcome.

• A mismatch outcome arises where a payment is deductible in the payer territory but not included as income in the payee territory, and this is due to differences in how the financial instrument or payments under it are characterised for tax purposes in each territory.
• Where Ireland is the payer territory (primary rule), the payer is denied a deduction to the extent the corresponding amount has not been included for foreign tax purposes.
• Where Ireland is the payee territory and the payer territory has not denied the deduction under an equivalent rule (defensive rule), any domestic provision allowing the non-inclusion is disapplied, or, failing that, the payee is charged to tax under Case IV of Schedule D.
• Where the defensive rule applies and the charge arises under Case IV, the amount is taxable in the first of the payee's tax periods to commence within twelve months of the end of the payer's tax period in which the deduction occurred.